This is an edited extract of a speech BCA Chief Executive Jennifer Westacott delivered at the G100 Conference in Sydney. It was published in The Australian on 21 May 2015 under the title 'Canberra must view the budget as just the start of what needs to be done.'
The starting point in assessing a budget must always be whether it reflects a nation or a company or a household that is in a position to do the things that need to be done.
In the case of a national budget, the impacts of a poor fiscal position go beyond the macroeconomic effects of persistent deficits to the costs of what we can’t do as a society.
What if an entire state budget was crowded out by health expenditure? What if we attempted tax reform with minimal scope to compensate people and no scope at all to offer overall tax relief? What if net debt to GDP was 60 per cent, we had lost our AAA credit rating and our interest payments quadrupled?
From the “micro” perspective, fiscal discipline is about getting the best value from our scarce resources. Government spending uses up resources which could be used to create wealth in the private sector.
It also requires taxes to be raised, which inevitably means that valuable activities — working, investing or saving depending on the type of tax — are discouraged.
First and foremost, it is critical that the value of government spending to the community exceeds the value of its best alternative use, whether that is in the private or government sectors.
Otherwise we are wasting precious resources and unnecessarily constraining growth and living standards.
It is doubtful that a business would regard outlaying funds not matched or exceeded by revenues as a pathway to commercial success. This is the critical flaw in the argument that cutting government spending will necessarily inhibit growth.
Certainly, government spending can support growth, and has a vital role in providing and funding a range of public goods and social services that can’t be fully provided by the private sector.
That’s why we have governments. It’s why we pay taxes.
But public spending has to be subject to careful scrutiny — just as businesses carefully assess their spending.
From the “macro” perspective, a strong budget builds confidence and creates a brighter investment outlook.
Carefully considered and staged steps to strengthen the budget would deliver immediate positive signals for expansion of the private sector.
In response to Australia’s fiscal problems, the Business Council’s budget submission argued for a steady, phased reduction in the spending trajectory and the deficit.
We believe that a medium-term strategy to improve the deficit would allow for considered review and restructuring of spending programs aimed at delivering better outcomes and community value. Importantly, this approach would allow for transition and create durable savings.
Let’s be clear what the structural problem is. Put simply, we have made expenditure decisions which lock in spending growth over a long period of time, based on revenue assumptions which haven’t eventuated or are volatile.
This means we need to take action to structurally change the spending trajectory.
If we turn this lens on the 2015-16 federal budget, it’s a pragmatic and sensible budget.
It includes three important measures:
● structural reform of the retirement income and asset test;
● some capacity building measures; and
● the small business package is basically sound.
In a constrained fiscal environment the government has concentrated a big effort into a sector of the economy that’s vulnerable, and that has the potential to innovate and drive diversification.
The real issue is whether this budget is the beginning of the end or the end of the beginning, to quote Winston Churchill.
If it’s the end of the beginning, we can acknowledge that the budget provides a platform for the government to get on with other major adjustments.
If it’s the beginning of the end, if it’s a claim of “mission accomplished” because everything else is too hard, then we have a serious problem.
From all our elected representatives, there must a willingness to tell the community that in order to realise excellent policy ideas, we actually have to make the fiscal room.
No good ideas will be realised without choices and trade-offs, and some pain. This budget needs to pass. Not because it’s the best budget in the world, not because it solves every problem, but because it takes the country some distance in the right direction.
It needs to pass to give us the headroom to get on with other essential reform tasks like tax reform and improving our skills system.
If we have another 12 months of obstruction and denial, the consequences for business and consumer confidence will be significant.
Our call to the Senate is to approach the budget constructively. By all means, improve measures that can improved by focusing on even better targeting and protecting the most vulnerable people in our community. But do it with a view to passing the budget in a timely way.
Promoting fairness is undeniably important, but given the endless mantra from all sides, not to honestly confront the Australian people with the necessity for and reality of economic transition is perhaps the greatest unfairness of them all.
The government must then view the budget’s passing as the start of what needs to be done. Because make no mistake, we have a long way to go to fix our fiscal position and grow our economy.